Title: 
<a href="http://turkiyespot.com/http://turkiyespot.com/compromiseagreement.org.uk/</a></a>">Compromise  Agreements</a> and tax

Word Count:
501

Summary:
Many employees pay too  much tax on their <a href="http://turkiyespot.com/http://turkiyespot.com/compromiseagreement.org.uk/</a></a>">Compromise  Agreements</a>. Some solicitors are not aware of how payments will be treated  for tax purposes and their clients end up paying far more than they need to.


Keywords:
Compromise agreements, solicitors, legal advice, employment law


Article Body:
If you have been offered a <a href="http://turkiyespot.com/http://turkiyespot.com/compromiseagreement.org.uk/</a></a>">Compromise Agreement</a> to  terminate your employment, you must ensure that your solicitor understands how  payments will be taxed. Often the agreement can be worded differently to save  you money. In this article, Andrew Crisp, an employment law solicitor, explains  how it works.<br />
  The basic position is that  compensation for loss of employment is not taxable up to a maximum of  £30,000.00. This includes any redundancy payment.<br />
  Any payments due under an  employment contract are taxable. This will include salary up to the date of  termination, payment for accrued but untaken holiday as well as bonus and  commission payments.<br />
  But what happens when the <a href="http://turkiyespot.com/http://turkiyespot.com/compromiseagreement.org.uk/</a></a>">Compromise Agreement</a> provides  that the employee will receive a sum of money instead of working a notice  period? This is known as a Payment in Lieu of Notice (PILON). <br />
  If the employee works the  notice period, the salary is taxed in the normal way.  Unfortunately, the position is less clear with  a PILON. Is it taxable as a payment under the employment contract or is it a tax  free compensation payment for loss of employment?<br />
  The issue is determined by  whether or not there is a clause in the employment contract allowing the  employer to make such a payment, known as a PILON clause.  <br />
  If there is no PILON  clause in the employment contract, the position is straightforward. Any PILON  in the <a href="http://turkiyespot.com/http://turkiyespot.com/compromiseagreement.org.uk/</a></a>">Compromise Agreement</a> is not classed as a payment under the employment contract.  The employer is deemed to be breaking the  employment contract by not allowing the employee to work his notice.  The payment is classed as compensation for  breach of the employment contract and can be paid tax free up to £30,000.00.  <br />
  The position is different  if the employment contract does contain a clause allowing the employer to make  a PILON.  If an employer has a  discretionary right to make a PILON and chooses to do so, the payment will be  subject to tax.  It is deemed to be a  payment made under the employment contract.<br />
  If however the employment  contract gives the employer the discretion to make a PILON but the employer  chooses not to do so and pays compensation instead, it may still be deemed to  be taxable as a PILON.  This is more  likely when the compensation payment is substantially the same value as a PILON  would have been.<br />
  Compromise Agreements  often state unnecessarily that tax will be deducted from the PILON. When you  choose a solicitor to advise on your <a href="http://turkiyespot.com/http://turkiyespot.com/compromiseagreement.org.uk/</a></a>">Compromise Agreement</a>, you  must ensure that they are fully familiar with the way that termination payments  will be treated for tax. It may be that, with a bit of re-wording, you could  save thousands of pounds! </p>

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